Gas squeeze forces JSW to mull coal-fired furnace

JSW Steel is planning to set up a blast furnace at Ispat Industries’ facility in Maharashtra as a long-term measure against an erratic supply of gas, which has plagued production at the unit for a long time.

“Since gas supply to Ispat has been cut down to 20%, it is a matter of concern for us. Setting up a new blast furnace in the long run is an option we are looking at,” said Sajjan Jindal, vice-chairman and managing director, JSW Group.

Ispat Industries has a 1.6 million tonnes per annum sponge iron plant at its Dolvi, Raigad, facility. The gas-based direct reduced iron (DRI, or sponge iron) plant was sourcing close to one million metric standard cubic metres of gas per day from GAIL and Reliance Industries.

Sponge iron is formed by reducing the carbon content and other impurities in iron ore, for which natural gas or coking coal can be used. With the blast furnace, the company can use coking coal instead of natural gas to make sponge iron.

After JSW Steel took over the operations of Ispat Industries on December 20, 2010, the ailing company was turned into a profit-making venture in the final quarter of the last fiscal after restart of the Dolvi facility.

“We have been able to run the plant at an operating efficiency of 88%, but in a state of reduced supply of gas, the production will be hit,” said Jayant Acharya, director, marketing and commercial, JSW Steel.

On May 8, Reliance Industries cut down its supply of gas to steel companies down to 20% after an order by the petroleum ministry asked the company to reduce the supply of gas from its KG D6 field to non-core sectors.

As a result of the cut in supply, all the companies are likely to take a hit on their production. “It is difficult to put a number on the impact the reduced gas supply will have on Ispat’s production, but in the short term, there will be a cut in production if the gas supply is not resumed,” said Sheshagiri Rao, group chief financial officer, JSW Group.

He said the company is considering several options from a long-term perspective including setting up a new blast furnace, scrap route of production or even buying gas on spot prices.
But Jindal said buying gas on a spot basis is a costly proposition, so the company may look at setting up a blast furnace.

An analyst with a foreign brokerage said while JSW has been able to turn Ispat profitable in a short time, but the outlook for the current year is not good for the company. “While margins for Ispat will continue to be good because of operational synergies from JSW, it will be difficult to keep it profit making for the next one year,” he said.

Even if the company goes for a blast furnace, it will take two to three years and additional investment. Therefore in the short term, gas supply cut is a serious concern for Ispat, the analyst said.